The housing market had a banner year in 2020, gaining a whopping $2.5 trillion in value over just 12 months. It was the highest increase in value since 2005.
For homeowners and property investors, the news was especially good. The vast majority of increases came from the appreciation of existing homes, which jumped in value by a jaw-dropping $2.2 trillion.
It's no surprise either -- at least when you look at the breakdowns. According to Zillow (NASDAQ: ZG) (NASDAQ: Z) data, the typical home gained around $20,000 in value last year -- or about 8.4%. In some markets, jumps were even bigger. Phoenix, for example, saw values rise over 15% across the year. San Jose, California; Salt Lake City; Seattle; and Austin, Texas weren't far behind.
The trend likely has property owners weighing a serious decision: Should I sell and reap the rewards or ride it out and hope for more increases? Here's what you need to know to decide.
Why the rise?
There were many reasons behind last year's jump in values. First, record-low mortgage rates fueled demand. These tempted renters off the sidelines and made homeownership more affordable for many.
There was also the pandemic factor. With millions of Americans stuck at home for extended periods of time, many found themselves needing a change of scenery -- or just more space. Others took the opportunity to move out of cramped cities and urban cores (where infections were often worse), while many more opted to move closer to friends and family.
Remote work arrangements also made moves easier to come by. As commutes and general proximity to the office became less important, some workers seized the opportunity and headed to their dream locales.
Finally, dwindling inventory also played a role. At one point, national housing supply reached its lowest point ever -- and with high levels of demand and few homes to choose from, this drove prices to a premium.
Will 2021 be the same?
A lot of the above conditions still exist in today's market. Many people are still working from home (about 42% by recent estimates), and mortgage rates are still low. (They've risen in recent weeks but are still extremely low by historical standards).
There's also very little inventory. Though supply has jumped a bit in the last few months, as of December 2020, there's only a mere 4.3 months' worth of homes on the market. This is well below 2019 and early 2020 numbers, before the pandemic hit.
Because of all this, most experts expect home prices to keep rising this year. Will they be the same astronomical increases as in 2020? That depends on who you ask.
Here's what the industry's biggest names predict:
- Freddie Mac (OTCMKTS: FMCC): 5.4%
- Zillow: 10.3% (through November 2021)
- Realtor.com: 5.7% (existing homes only)
- National Association of Realtors: 8%
The biggest question is whether vaccines encourage more sellers to hit the market, which could free up supply and reduce pressure on prices.
It's all about location
Keep in mind that real estate is local, so while the overall market might be gaining steam (or be predicted to, at least), that doesn't necessarily mean every city will.
Make sure you study up on trends in your local market before deciding whether to sell or bank on more increases in the future. A knowledgeable real estate agent can usually help here, too.
Zillow also has a database of info on last year's trends. Just choose your market from the drop-down menu to see how it measures up. This data on seller profits can also help point you in the right direction.